Nigeria, a nation with a lot of potential and natural resources, has had many economic difficulties throughout the years. The scarcity of the indigenous currency, the naira, and the rising influence of the U.S. dollar have both been significant problems for the Nigerian economy. The relationship between Nigeria’s government, the dearth of the naira, and the predominance of the dollar in the national economy will be discussed in this blog article.
Nigeria has long been regarded as one of Africa’s economic powerhouses due to its sizable population and enormous oil reserves. Nevertheless, despite its potential, the nation has consistently struggled with issues like inflation, unemployment, and a weak currency. Nigeria’s excessive reliance on oil as its primary export and source of income is one of the main causes of the naira’s scarcity. The Nigerian government is overly dependent on the U.S. dollar because it earns the majority of its foreign cash from oil sales.
At the end of October 2022, Naira in circulation was N3.29 trillion before the CBN began its Naira redesign policy, which resulted in the scarcity of banknotes. In the last week of October, Emefiele announced that the CBN would begin to mop up the funds to reduce the amount of cash in circulation.
Part of its strategy to reduce cash in circulation includes redesigning the old N200, N500 and N1,000 notes, with the new banknotes released in December 2022, while the old notes were to phase out on 10 February 2023.
The central bank continued to mop up the old Naira in circulation, withdrawing N2.3 trillion from circulation between October 2022 and February 2023 while producing fewer new notes, notwithstanding the Supreme Court’s rulings on February 8, 15, and 22 that the old Naira notes were valid.
This was one of the factors that prolonged the Naira’s shortage, which continued into March despite a ruling by the Supreme Court on March 3, 2023, stating that the old Naira would remain legal until December 31, 2023.
The amount of money in circulation decreased by 70.14 per cent, from N3.29 trillion in October 2018 to N982.09 billion in February 2023.
Nigerians still could not access money put in their accounts despite the decision that the new and old notes should coexist for 10 months since cash in circulation was declining and cash in commercial banks or the CBN’s vaults was rising. This led to hoarding of the new currency as a public bus conductor from Ikeja to Ketu was once spotted separating the old naira notes from the new ones. When asked why he was doing that, he said he was saving the new notes as the CBN has failed to release more new notes to the banks.
The dearth of the naira is significantly influenced by the Nigerian government. The value of the local currency is affected by the policies and actions of the government, and there have been issues with poor administration, corruption, and inconsistent economic policies over the years. The devaluation of the naira and subsequent scarcity of the currency are the results of the absence of a strong and open economic system.
The rising influence of the dollar in Nigeria’s economy is one effect of the devaluation of the naira. Many companies and individuals in Nigeria choose to transact in US dollars due to the naira’s restricted availability. The dollar is widely used in a variety of industries, including real estate, import/export companies, and even day-to-day transactions. A dollarized economy has resulted from this, with the U.S. dollar serving as the default currency for many transactions, particularly in the unorganized sector.
There are various effects of the U.S. dollar’s influence on Nigeria’s economy. First, it has increased the demand for dollars, which has caused the value of the naira relative to the dollar to decline significantly. As a result, Nigerians now pay more for imported goods and services, there is inflation, and their purchasing power has decreased. The naira’s depreciation has also increased the cost of importing goods for companies, which has an effect on their profitability and competitiveness.
In addition, managing the country’s monetary policy has become difficult for Nigeria’s central bank as a result of the economy’s dollarization. Due to the fact that the majority of dollar transactions take place outside of the official banking system, the Central Bank of Nigeria (CBN) has little control over the supply and demand of dollars in the economy. The CBN finds it challenging to conduct efficient monetary policies to curb inflation and stabilize the naira as a result.
Additionally, Nigeria has become more sensitive to outside shocks as a result of its reliance on the US currency. The value of the naira can be considerably impacted by changes in international trade policy and fluctuations in the price of oil, which can have an effect on Nigeria’s economy and the standard of living for its population.
Government, the central bank, and other stakeholders must work together to address the naira shortage and lessen the dollar’s sway over Nigeria’s economy. Here are a few potential answers:
• Diversification of the economy: Reducing the country’s overdependence on oil by diversifying the economy and promoting other sectors, such as agriculture, manufacturing, and services, can help generate alternative sources of foreign exchange earnings and reduce the pressure on the naira.
• Stable and transparent economic policies: Implementing stable and transparent economic policies that promote investment, encourage local production, and create a favourable business environment can help restore confidence in the naira and reduce the demand for dollars.
• Strengthening the banking system
The government can also think about implementing more lenient exchange rate regulations that would let the naira freely fluctuate against foreign currencies. As a result, the naira’s value would be determined by the market, resulting in a more stable exchange rate and lessening the scarcity issue.
Nigeria’s naira shortage is a complicated problem that needs a multifaceted approach to resolve. The Nigerian government can take action to strengthen the economy of the nation, lessen corruption and poor management, diversify the economy, and adopt more flexible exchange rate regulations to solve the issue of naira scarcity and stabilize the country’s economy even if the influence of the dollar is obvious.
Source: Business Insider Africa
